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Researchers Begin Probe of £259 Billion Pension Scheme

Staffing and expertise at the Local Government Pension Scheme will be evaluated as the funds face membership, regulatory, and organizational change.

  • Joe McGrath

Funds in the U.K.’s £258.7 billion ($338.2 billion) Local Government Pension Scheme will be assessed on the basis of talent and resources by the Pensions & Lifetime Savings Association, which aims to identify areas of best practice.

The project, which the PLSA will outline in further detail at its Local Authority Forum on Tuesday, will assess levels of staffing and expertise across the 91 English and Welsh funds, with a final report to be published next year.

Joe Dabrowski, head of governance and investment at the PLSA, told Institutional Investor that the project will analyze the differences in each fund’s membership, their level of resourcing, and their use of shared services.

“One of the big pieces of work we are kicking off at the moment is talent resourcing from the LGPS, which will be ready in the first half of next year,” he said. “It will be a combination of qualitative and quantitative research.”

The project is timed to coincide with two major events affecting the LGPS: The establishment of investment pools and the arrival of the second Markets in Financial Instruments Directive.

Under MiFID II, as it’s known, the LGPS funds will automatically be reclassified as retail investors. But they can escape this label – which comes with higher costs and more limited investment choices – if they supply evidence that the trustees of these funds work, or have worked, in the financial sector.

David Walker, head of LGPS Investment at Hymans Robertson, an adviser to LGPS funds, said most funds have already outlined plans to “opt up” to professional status ahead of the January deadline. British local authorities who manage these pension funds are currently recruiting trustees with professional financial services experience to adhere to the new rules, which come into force January 3, 2018.

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Meanwhile, the LGPS is undergoing structural reform following a 2015 government directive which advised the scheme to consolidate its funds into larger pools, with the goal that the funds will be managed by more experienced individuals and obtain more favorable terms with asset managers. The process is very much underway, with assets set to be managed in eight pools starting April 2018.

Establishing the new pools - Access, Border to Coast, Brunel, Central, Local Pensions Partnership, London, Northern, and Wales – has led to a rush of CIOs and senior U.K. pensions managers taking up new roles at the funds. Walker said this has also created some short-term issues for the LGPS.

“For England and Wales, the pooling agenda and structural reforms are still taking up a considerable amount of time for a lot of funds,” he said in an interview. “We are also seeing a number of key people move from funds over to the pools, with the result that you have some resourcing issues in terms of maintaining a level of governance and diligence at the funds side.”

Amid all of these changes, the number of employers that are a part of the scheme has gone up, due, in part, to a U.K. government initiative to change how state schools are governed. With more schools converting to academies to obtain greater freedom over choice of teaching staff and budgets, there has been an increase in the number of employers joining the LGPS.

The PLSA’s Dabrowski explained that the “academization” of schools has put additional pressure on funds which have to explain how the scheme works to new members.

“We have seen a massive increase in the number of participating employers, driven by academization,” he said. “That brings its own challenges with the scheme having to deal with a lot of new employers.”

The Department for Communities and Local Government’s 2017 statistical release on the LGPS showed that employer contributions into the scheme grew to £7.4 billion in the year ending March 2017, an increase from £7.1 billion in the previous year, while employees paid in £2.1 billion, up from £2 billion a year earlier.